Global Asset Allocation – New Book!

So my new book is finally done!  Sorry that took longer than expected but sometimes life just intervenes.  Publication date is officially next Monday, March 2nd but you can go here and pre-order a copy of the eBook on Amazon here.  Starting Monday, to celebrate, I will also make my last two books on Amazon free to download for 5 days…


Global Asset Allocation with border


As with the last two books, my goal was to keep it short enough to read in one sitting, evidence-based with a basic summary that is practical and easily implementable.  Like my other books, this is not meant to be a moneymaker, rather, I just want to get it in as many people’s hands as possible that want to read it.  And since many often ask about the ins-and-outs of self-publishing, below is a long post with lots of links and comments on the whole process. (You can find my case study on publishing my first eBook here to see what has changed.)

Pick up a copy, or, if you promise to write a review I’ll even send you a free one on Amazon – just sign up here and expect to receive one in a few days after request.


1.  WRITING– Like my last three books, I go a bit manic when writing and editing.  Months of writer’s block/dread are followed by an intense period where it all comes out over the course of a month or so and then I promise to never write again.  Book #5 is actually also 90% done, though I had a little help on that one with some background research and look for it in 3-6 months time.  But after both of these, I’m done!

2.  EDITING –   Going self-published means you no longer have a professional team behind you to edit and design the interior and exterior.  I used Kibin to do a first edit for spelling, grammar ($200 or so).  Then, I offered a sneak peak to Twitter followers that were willing to give comments and suggestions.  The funny thing here is that no matter how many people edit your book, someone ALWAYS finds an error, and surprisingly, they are rarely the same.  I owe a huge debt to the people that helped edit, you know who you are, and THANK YOU.

3.  INTERIOR DESIGN – My last two books I did this myself with Vook, which seems to be discontinued for personal use but still open for outsourcing.  A number of other sites now offer outsourced interior design including Nook Press (new to me) for $250 – $500.  I would have tried Nook had I known ahead of time, but had also contacted the folks at BookinaBox about their contractors.  They passed along a few people and resources such as Command Z Content and BubbleCow for editing and The Book Designers for interior design.  I ended up using a fellow named Ian Cladius for the design and he was great.  Budget a month lead time to get all the edits done (which is why the book was delayed a bit).

4.  EXTERIOR DESIGN – Once again I used 99Designs for the design contest.  I think the general designs were pretty good, and usually this type of contest works better if you have an idea of what you want or at least give some guidance.  As usual, I picked the 5 best and let the readers decide – and overwhelmingly, they picked the above cover which has grown on me.  Eventually there will be a paperback once we finish the interior design there as well.

6.  AVAILABILITY – Like the last two books I’m tossing this one up on Amazon for $2.99.  Eventually there will be a paperback to follow that will be priced at break-even.  Below is a picture from Amazon on maximizing revenues for an eBook.  Since I don’t care about the variable but rather the # of people reading it, we went with a lower price.



The quality of the paperbacks from Createspace are still not as good as the traditional publishers but I expect that to change sooner than later.  Amazon is oddly not that user friendly to authors – for example you can’t even find the total number of books sold without downloading monthly Excel files and compiling all the data yourself. Nor can you gift the ebook to anyone – you actually send them a gift card which seems absurd since they can go buy a pair of socks instead of the ebook.  A new site called AppAnnie seems like a good work around that I’m trying out.

So, knowing there are a lot of people that would still like to read and or print the book out, I’m listing it on Gumroad as a PDF that is priced slightly more than Amazon to not run afoul of any Amazon rules.  I also tossed some sample chapters on Bitorrent Bundles but I don’t really think that is my core audience, but who knows.

I am going to publish most of the content over the next few weeks here as well.  I didn’t go down the rabbit hole of active and tactical too much, but will follow up with a bonus blog post or two at the end of this…

7.  MARKETING – You can find lots of ideas from James AltucherRyan Holliday, and OkDork via case studies they have done about marketing their books.  They are experts at getting the word out and I have adopted some of their ideas in this go-round.  However, being super self-promotional isn’t really my style so many I don’t include.  My goal isn’t to sell books for revenue, but rather to have as many people read them as possible.

We still use Dukas PR firm out of NYC, and they are outstanding.

I’ll update this over the next few weeks as the process is completed, and as usual, let me know what you think!

Below is the Table of Contents of the upcoming blog posts of the book…


CHAPTER 1 – A History of Stocks, Bonds, and Bills

CHAPTER 2 – The Benchmark Portfolio: 60/40

CHAPTER 3 – Asset Class Building Blocks

CHAPTER 4 – The Risk Parity and All Seasons Portfolios

CHAPTER 5 – The Permanent Portfolio

CHAPTER 6 – The Global Market Portfolio

CHAPTER 7 – The Rob Arnott Portfolio

CHAPTER 8 – The Marc Faber Portfolio

CHAPTER 9 – The Endowment Portfolio: Swensen, El-Erian, and Ivy

CHAPTER 10 – The Warren Buffett Portfolio

CHAPTER 11 – Comparison of the Strategies

CHAPTER 12 – Implementation (ETFs, Fees, Taxes, Advisors)

CHAPTER 13 – Summary


APPENDIX B – The Tobias Portfolio

APPENDIX C – The Talmud Portfolio

APPENDIX D – The 7Twelve Portfolio

APPENDIX E – The William Bernstein Portfolio

APPENDIX F – The Larry Swedroe Portfolio


#1 Read of the Year

I sent this to The Idea Farm last week – this is always my #1 read of the year,  the CSFB Global Investment Returns Yearbook!  This is the annual update to my favorite investment book,Triumph of the Optimists.  Included this year is a near 100 year backtest on industry rotation based on value and momentum.


First person to replicate their returns with French Fama data below gets a free sub to The Idea Farm.


industries market cap weight, also equal weight

industries sorted by momentum quintile

industries sorted by valuation quintile

industries sorted by valuation/momentum combo quintile

returns, volatility, drawdown stats and equity curves

How to Hedge Your Business

Note: I’m holding a cover design contest for my new book out next week, feel free to enter!

This is normally something I would send to The Idea Farm, but since we started the conversation here I wanted to follow up.  One of the best parts of writing is getting feedback.  I posted an article the other week on hedging the biggest risk in the BUSINESS of asset management.

Sure enough, a thoughtful reader emailed in a fun paper from SSgA titled, “A Comparison of Tail Risk Protection Strategies in the U.S. Market“.  Lots of the strategies are somewhat costly, but you know what isn’t?  Two of my favorites – managed futures and a simple long/short trend strategy.  A chart and a quote:

Screen Shot 2015-02-03 at 8.35.16 AM

“As a reminder, our tactical equity strategy uses a simple trading rule and is long the S&P 500 index when above its 10 month moving average and short the index when below. Remarkably, of the 24 months with greater than 5% loss in the S&P 500 between March 1990 and March 2011, 17 of them (or 71%) occurred with the S&P 500 below its 10-month moving average.”


Everything Old is New Again

Reading old investment books is somewhat of a hobby of mine (I know probably need a better hobby).  Glancing up on my bookshelf there are titles most have never heard of such as Once in Golconda, The Zurich Axioms, and Supermoney.  I was flipping through another book new to me that I found when thinking about titles for my new book (coming in a week or so, promise!)  It was called Diversify and was published in 1989.

Anyways, I was surprised to see the author propose the “All-Weather Portfolio” that consisted of 30% stocks, 15% foreign stocks, 15% US bonds, 20% international bonds, 5% gold, and 15% T-bills.  That portfolio obviously has the same name as Ray Dalio’s fund which launched five years later in 1994.  I’m not suggesting Ray copied this book obviously, as it is a very common phrase, but I just thought it would be fun to compare Dalio’s recently suggested portfolio from Tony Robbin’s new book to this portfolio proposed over 25 years ago!

Below are the stats.  I named the Diversify portfolio ALLW2.  As you can see, they are near clones of each other.  That is a good thing in my mind, as a solid diversified portfolio should be very “average” in a sense.  But remember, if you’re only doing 5% real a year, fees are your greatest enemy.  But what do you spend most of your time on?  The asset allocation.




IMG_2263 (1)


Why Don’t Asset Management Companies Hedge Their Biggest Risk?

I had a great time this week catching up with old and new friends at the annual ETF conference in Florida.  I think I’ve been to just about every one of the eight or so conferences they have had, and it has been interesting to watch the growth from a small venue to about 2,000 people.  We are certainly in boom times for the ETF industry – I think about four firms have been purchased in the past year and there was even a giant 30 foot ski machine in the middle of the booth room – another sign of a seven year bull market as well. (PWC has a new report detailing they expect the ETF space to hit $5T by 2020.)

I was thinking about our booming industry while dipping my toes into the Atlantic, and it reminded me of an old question (and idea) from a blog post way back in 2009 called “A Quant Approach to Private Equity“.  Ironically, you can also read my thoughts on the roboadvisory space six years ago when Wealthfront was still a trading game on Facebook called kaChing.

I posed this question in a blog post, and will quote from it below:

“I always wondered why big investors of private equity (like the endowments and pension funds) don’t hedge their portfolio at all?  If they assume that they are top quartile, which they have to assume becuase otherwise they should be buying SPY and QQQQ, then they are assuming they’re generating alpha returns.  So why not hedge out some of that risk through a static, or better, dynamic hedge?  Hedging against long bear markets is a great idea because not only are their holdings going down in value, but their exits disappear.  Anyways, ping me if anyone does this I’d like to chat with them.  Is there such a thing as a market neutral private equity investor?

We talk a lot about private equity in the book, and a lot about why using the ETFs (ETNs) in the US doesn’t make any sense.  Anyways, below is the 10 month SMA on the not-recommended PE ETF.  Looks like you would have sold somewhere in the 20’s and bought back somewhere around 8.  Not too shabby.”

So while my old post focused on the end investor for private equity (say CALPERs or the endowment funds), this one is going to focus on the actual operating companies themselves.

So follow my thinking for a minute.  Airlines hedge their biggest risk (the cost of fuel), as do food companies (commodity prices, etc).  A recent book titled The Secret Club That Runs the World: Inside the Fraternity of Commodity Tradershighlighted some of these companies and hedging programs.

So, what is the biggest risk to an asset management firm (or PE firm too), especially one that is highly exposed to long only holdings in stocks?  The biggest risk is stock losses, particularly a long bear market.  Assume a nice fat 50% bear market in stocks – that results in the asset management company losing 50% of revenues due to fees declining, but also potentially people selling at the bottom etc.

So why don’t large asset managers hedge not their portfolios, but their business risk?  This could be done simply by a) buying puts or other long-term LEAP style out of the money options on a consistent basis or b) doing the same on a trendfollowing basis?  This would be an insurance style cost in good times, but would help to smooth revenue and ensure the firm survives in a challenging environment the same way hedging fuel ensures Virgin or Southwest could stay in business if oil did goto 150 (or, err, 60).

This situation is particularly timely and personal for me as my firm, while small and growing fast, is mostly exposed to long assets currently (which for a tactical/macro guy like me makes me squirm!)  This seems like a much more anti-fragile way to run your company…

Anyone ever heard of a Legg Mason, Fido, or other such firms hedging their company-wide revenue stream in the financial markets?

The Most (Not) Hated Bull Market

I look forward to reading Leuthold’s Green Book every month and the most recent one was great.

I asked permission to share the following study as I thought it was revealing.  They looked at sentiment levels as published by Investor’s Intelligence – specifically they averaged all of the values for each year to get a yearly reading. Below is a chart of the values.


Screen Shot 2015-01-10 at 4.50.00 PM

But does sentiment help with stock market returns?  Below are the 10 highest and lowest sentiment years and the returns of the stock market the following year.  Not surprisingly high sentiment results in low returns of 0.1% per year.  Low sentiment results in whopping 17.4% returns per year.  What was average sentiment in 2014?   2014 was the second highest value ever at 76.3%


Screen Shot 2015-01-10 at 4.50.13 PM Screen Shot 2015-01-10 at 4.50.20 PM

The Agony and the Ecstasy of Being a Trendfollower

This one chart shows almost everything – the whipsaws & false breakouts, but also the monster gains.  The emotions are just as difficult for trendfollowers as they are for the buy and hold crowd, they are just at different times and for different reasons…



Travel: Houston, Miami, Tucson, BC, Pittsburgh

A few upcoming events…come say hello!

January 12th, Talk at FPA, Houston

Jan 28th – Jan 28th, ETF Conference, Miami

Feb 12th, Talk CFA Society, Tucson

March 19-25, Vancouver (skiing)

April 15th, Talk CFA Society, Pittsburgh

May 16th, Talk Los Angeles AAII

NY Resolution For You – Don’t Buy a Tesla

Vanguard, like many of the robo-offerings, markets the fee difference as a big reason to use their automated investment service. (Though as Kitces mentions, Vanguard isn’t quite a robo since they employ lots of CFPs.) They compare the difference between their fees (0.30%) and the industry average (1.32%) which sounds high to me, as I think it is around 1% although average mutual fund is 1.25%.



returns v


If you assume a $1M portfolio, let’s look at how much fees eat into your returns over time at 0%, 0.3%, 1.32%, and 2% advisory fees.  We will ignore the underlying ETF costs to try to compare apples to apples, and assume all use low cost index ETFs.  Lest you think there are not people charging 2% to manage a buy and hold portfolio let me remind you otherwise with the chart at the end of the post with a fee summary.  0% is achievable either by investing on your own or using something like our 0% management fee ETF or Schwab’s upcoming offering.

30 bps in fees costs a portfolio only $3k per year, but 1.32% ($13k) and 2% (20k) are much more dramatic.  20k is basically a new Tesla every few years.  This doesn’t mean of course an advisor isn’t worth their fees, I’ve said a million times on the blog that they can we worth their weight in gold if they offer value added services like tax planning, estate planning, insurance, wealth management, etc.  (Or keep you from doing something even dumber on your own.)  But $20k per year is a really high bar to justify. Mentally visualize carrying a briefcase of $20,000 every year to your advisor instead of it being automatically deducted from your account.

For a buy and hold asset allocation portfolio you want to be paying as little as possible.

So, for an investment lifetime of 30 years, assuming 6% returns, how much did the various fee levels cost the investor?


Now think about that for a second.  Over your lifetime, if you started with $1M in assets, you transferred anywhere from $240,000 to $1.1 million to your advisor.  (The above table also shows in the fees lost column the difference you lose by not compounding the lost fee assets.)  2% a year means you end up paying your advisor your entire initial investment amount.  When you sit down with your advisor that you choose to have for the next 10 years ask yourself – “Is this advice worth $240k in total (nearly a third of total starting portfolio value) if you’re paying 2%?”

What if markets actually returned 10% per annum?  The figures get even more gross since your portfolio grows to a much higher balance.  At 2% the original $20,000 you paid 30 years ago is now a whopping fee of $200,000 per year.  Even at the average advisor fee of 1.32% that is $160,347 per year.

Maybe your New Years resolution should be to not buy someone a new Tesla this year?

People in red below are over .50%


Stock Valuations Around the World

I talk a lot about foreign stocks being cheaper than they are in the US.  I’ve shown this on a CAPE basis before (and also in our book Global Value) where the US is the highest valuation (27) relative to foreign stocks (15) ever.  Good news is 27 isn’t awful like 1999, and 15 is downright pleasant.

Below is two more valuation metrics, regular old 1 year PE ratio and PD ratio (dividends).  Both say the same thing, albeit with different magnitude: look abroad for cheaper stock valuations.

Blue line is average over the period, both right around zero!



Source: DataStream, Stansberry Research for concept

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